New Zealand Jobless Rate Holds at Record Low as Wages Gain

(Bloomberg) --

New Zealand unemployment held at a record low in the first three months of the year, stoking wages and inflation expectations that are helping drive an aggressive central bank tightening cycle.

The jobless rate remained at 3.2%, the lowest level since records began in 1986 and matching economists' estimates, government data showed Wednesday in Wellington. Employment increased 0.1% from the previous three months, while annual wage inflation accelerated to 3.1%, the fastest pace since 2008. 

New Zealand businesses are struggling to secure staff due to a shortage of imported workers, while there are concerns that as the border re-opens many locals will seek better-paying jobs overseas. Inflation has accelerated to a 32-year high and the Reserve Bank is rapidly raising the official cash rate to remove stimulus from the economy.

Last month, the RBNZ delivered its biggest hike in 22 years, raising the OCR by half a percentage point to 1.5% and saying it needed to tighten more quickly to head off rising inflation expectations. Several economists are tipping another aggressive move to 2% at the next meeting on May 25.

“For the Reserve Bank, the wage inflation measures are where the rubber meets the road, so in that respect today's figures present a moderate upside surprise,” said Michael Gordon, acting chief New Zealand economist at Westpac Banking Corp. in Auckland. 

“That underscores the decision to accelerate the pace of monetary tightening at the April review, and leaves us comfortable with our forecast of another 50 basis point OCR hike at the May review.”

Inflation was 6.9% in the first quarter, more than double the top of the RBNZ's 1-3% target band.

Central bank policy makers say employment is above the maximum sustainable level that they are required to achieve. They don't have a numerical target for employment growth or the jobless rate.

The quarterly gain in employment matched economists' expectations. Annual employment growth was 2.9% against the median forecast of 3.1% and slowed from a revised 3.5% in the fourth quarter.

The participation rate dropped to 70.9% from 71.1% in the three months through December.

Statistics New Zealand said the underutilization rate, which is a broader gauge that includes employed persons seeking additional hours, rose to 9.3% from 9.2% in the fourth quarter.

Ordinary time wages for non-government workers rose 0.7% in the quarter, the statistics agency said. From a year earlier, wage growth was 3.1%, up from 2.8% in the 12 months through December.

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